Knight Frank launches the latest Hong Kong Monthly Report. In the current slow economy, a number of companies have opted to relocate or downsize, benefiting decentralised business areas with ample supply and lower occupancy costs. Residential sales rose slightly in May, but polarisation lingered in the market, which continued to be led by the primary and super-luxury segments. The retail market saw some good news recently, including a slower drop in Mainland visitor numbers year on year and robust leasing activity involving the resilient food and beverage sector.
Office
On Hong Kong Island, Grade-A office leasing remained subdued in May, because of limited supply. Decentralised business areas, in contrast, were very active, with a number of major leasing transactions recorded. The en-bloc office sales market remained active.
Looking ahead, David Ji, Director, Head of Research & Consultancy, Greater China, expects office rents on Hong Kong Island to increase by 5% this year, as the low vacancy rates will continue to support rental growth. Meanwhile, office rents in decentralised areas may drop by 5% with abundant supply in the pipeline, but rental activity will remain robust.
Residential
According to provisional figures from the Rating and Valuation Department, Hong Kong residential prices dropped for seven consecutive months by a cumulative 11%. Mass residential prices led the decline, losing 11% in the period, while luxury residential prices dipped 8%. Clouded by a potential US interest-rate rise and abundant upcoming supply, residential land prices continued to edge down. The super-luxury sector remained strong. We expect more Mainland buyers to return to the market in the future.
David Ji maintains his forecast of a 5-10% drop in the luxury segment and up to a 10% drop in mass residential prices.
Retail
Strong demand in the food and beverage sector led to a growing number of food licences being granted. An additional 579 licences for general and light refreshment restaurants were granted in 2015, a 4.6% year-on-year increase. We saw a number of restaurant start-ups and expansion take place in the city as street shop rents fell. For instance, American restaurant chain Hooters will open its first store in Hong Kong in Wyndham Street, Central.
Despite the slowdown in the local economy, we expect to see further expansion of the food and beverage industry, especially affordable casual dining and fast food as some local residents tighten their belts.